UN flags vulnerability of ag prices to oil market weakness
The United Nations highlighted the vulnerability of agricultural commodity values to the weakness in crude oil markets as it revealed a drop in food prices to a four-year low, led by declines in sugar – one of the main crops linked to biofuels.
The drop in oil futures - which for Brent crude dropped below $50 a barrel this week for the first time since May 2009 – spelled "bearish price trends for commodities that can be used for biofuels", said Abdolreza Abbassian, senior economist at the Food and Agriculture Organization, the UN's food agency.
"The drop in oil prices obviously makes ethanol production less attractive," Mr Abbassian said.
Among commodities most likely to be affected, he noted sugar, which is linked to ethanol production through cane – a raw material for both products.
Weak ethanol prices mean sugar has to compete less hard for its allocation of cane, so undermining prices of the sweetener too.
He also highlighted palm oil, a major feedstock for making biodiesel, but which has nonetheless seen a sharp recovery in prices over the past month on concerns over floods hampering output in Malaysia, the second-ranked producer and exporter of the vegetable oil.
Four-year low
The comments follow data on Wednesday showing a jump in US ethanol stocks to their highest since March 2013 sent ethanol futures to a five-year low in Chicago, weighing on futures in corn, the main feedstock for making the biofuel in the country .
Ethanol values have nonetheless fallen less far than those of gasoline during the energy price tumble, bringing losses to blenders of the biofuel into gasoline.
And they came as the FAO said that food prices have fallen by 1.7% last month to their lowest since August 2010.
"Continued large supplies and record stocks combined with a stronger dollar and falling oil prices contributed to the decline," the organisation said.
Sugar, dairy weakness
The drop in prices was led by sugar, which dropped in value by 4.8% last month to the cheapest on FAO assessments since May 2010.
"Ample supplies in major sugar producing countries, including Brazil, the world's largest producer and exporter, and falling crude oil prices, which reduce the volume of sugar crops being converted into ethanol, weighed on international sugar quotations," the agency said.
Dairy values fell to their lowest since October 2009 as "abundant export supplies continued to weigh on international prices".
Prices have been undermined by "increased export availability and a reduction in the pace of purchases by some of the leading importers, especially China and the Russian Federation".
The falls, and declines in meat and edible oil prices, more than offset a 0.4% rise in cereal values, led by wheat.
"Worries about the possible introduction of restrictive export measures by the Russian Federation pushed up wheat prices, although a general strengthening of the dollar and weak trade activity limited the increase," the FAO said.
The United Nations highlighted the vulnerability of agricultural commodity values to the weakness in crude oil markets as it revealed a drop in food prices to a four-year low, led by declines in sugar – one of the main crops linked to biofuels.
The drop in oil futures - which for Brent crude dropped below $50 a barrel this week for the first time since May 2009 – spelled "bearish price trends for commodities that can be used for biofuels", said Abdolreza Abbassian, senior economist at the Food and Agriculture Organization, the UN's food agency.
"The drop in oil prices obviously makes ethanol production less attractive," Mr Abbassian said.
Among commodities most likely to be affected, he noted sugar, which is linked to ethanol production through cane – a raw material for both products.
Weak ethanol prices mean sugar has to compete less hard for its allocation of cane, so undermining prices of the sweetener too.
He also highlighted palm oil, a major feedstock for making biodiesel, but which has nonetheless seen a sharp recovery in prices over the past month on concerns over floods hampering output in Malaysia, the second-ranked producer and exporter of the vegetable oil.
Four-year low
The comments follow data on Wednesday showing a jump in US ethanol stocks to their highest since March 2013 sent ethanol futures to a five-year low in Chicago, weighing on futures in corn, the main feedstock for making the biofuel in the country .
Ethanol values have nonetheless fallen less far than those of gasoline during the energy price tumble, bringing losses to blenders of the biofuel into gasoline.
And they came as the FAO said that food prices have fallen by 1.7% last month to their lowest since August 2010.
"Continued large supplies and record stocks combined with a stronger dollar and falling oil prices contributed to the decline," the organisation said.
Sugar, dairy weakness
The drop in prices was led by sugar, which dropped in value by 4.8% last month to the cheapest on FAO assessments since May 2010.
"Ample supplies in major sugar producing countries, including Brazil, the world's largest producer and exporter, and falling crude oil prices, which reduce the volume of sugar crops being converted into ethanol, weighed on international sugar quotations," the agency said.
Dairy values fell to their lowest since October 2009 as "abundant export supplies continued to weigh on international prices".
Prices have been undermined by "increased export availability and a reduction in the pace of purchases by some of the leading importers, especially China and the Russian Federation".
The falls, and declines in meat and edible oil prices, more than offset a 0.4% rise in cereal values, led by wheat.
"Worries about the possible introduction of restrictive export measures by the Russian Federation pushed up wheat prices, although a general strengthening of the dollar and weak trade activity limited the increase," the FAO said.